New York — World’s largest online retailer eBay Inc., which is trying to reverse years of slowing growth in its auction business amid rising competition and a spreading financial crisis, announced on Monday it was cutting 1,000 permanent employees and several hundred temporary workers, about 10% of its global workforce, including jobs in India, even as it spends $1.3 billion to buy three Web businesses.
Nevertheless, the company also shocked Wall Street by announcing it was spending $1.3bn on acquisitions — including $945m on Bill Me Later, which will allow US shoppers make purchases online or by phone without the need for a credit card — to bolster its PayPal payments operation.
eBay, which already owns top online payments service PayPal, also said it has signed an agreement to buy Denmark’s leading online classifieds site Den Bla Avis (dba.dk) and vehicles site BilBasen (bilbasen.dk) for 390 million dollars in cash.
The online auction giant has about 16,000 permanent staff worldwide and the step would reduce the number of permanent employees by 1,000.
“The worldwide cutback is intended to simplify and streamline eBay’s organization, improve the company’s cost structure and strengthen the overall competitiveness of the company’s existing businesses,” eBay said in a statement on Monday.
Even after declaring the biggest retrenchment in its 13-year history, which eBay said would save $150 million in annual operating costs, the San Jose company saw its shares tumble by as much as 12% to their lowest level in more than five years; they recovered to close at $17.89, down 5.5%.
The auction house’s chief executive, John Donahoe, acknowledged that given the state of current financial markets, “to some it may seem counter-intuitive to be making these deals, but we believe it is an appropriate time to bring these companies into our portfolio”.
“PayPal and Bill Me Later belong together,” said Donahoe in statement. “We now have a powerful collection of the two leading, complementary online payment products, each with proven benefits for consumers and online merchants.”
He emphasized that eBay’s financing was strong and the problems in the global financial market would make “the strong stronger”. But he admitted “the economy and strong dollar” were hurting the business.
The company declined to provide details of where its’ 1,000 job losses — plus a reduction in temporary and contract staff — would fall but said it would result in a restructuring charge of $70m to $80m, which it will take in its fourth quarter.
But, according to an official of eBay India, the Indian arm of the American company, the firm would be reducing its employee strength to 80 as part of its organizational plans toward improving its “long term financial architecture.”
At present, eBay India has 110 employees.
“We have taken the decision to outsource our customer service and payment operations to another BPO firm VCustomer.
“Also being part of this development, 30 employees of eBay India will be transitioning to VCustomer,” eBay India’s Senior Manager (Corporate Communications) Deepa Thomas said.
The changeover of 30 employees to VCustomer is expected to be completed in three months, Thomas added.
On the Bill Me Later acquisition, Donahoe said eBay is “making aggressive moves to reinforce our leadership positions in e-commerce and payments to competitively position our company for long-term growth.”
Bill Me Later, which was founded in 2000, is the number two online payments company after PayPal, which allows online retailers to offer credit. eBay said Bill Me Later has “sophisticated underwriting techniques” and informs customers within seconds if they are approved for credit, without lengthy application forms and procedures.
eBay said that it anticipates Bill Me Later to earn an estimated 150 million dollars in revenue in 2009.
The company said PayPal President Scott Thompson will also run Bill Me Later.
PayPal, which eBay acquired in 2002, has grown steadily. Last year it generated $1.9 billion in revenue, 25 percent of eBay’s total. PayPal allows buyers to send money to sellers without waiting for a check to clear the bank.
Additionally, the acquisition of the Danish websites is part of eBay’s bid to strengthen its global standing in the classifieds market. It now has classified sites in 1,000 cities in 20 countries.
“Classifieds are the favored e-commerce format in Denmark and represent an attractive and growing market,” said Jacob Aqraou, general manager, eBay global classifieds business unit. “With more than 25 years of classifieds success in Denmark, Den Bla Avis and BilBasen are household names with Danish consumers.”
Morningstar analyst Larry Witt said the acquisition would give PayPal relationships with large merchants. “They are doubling down on what we think is their best growth opportunity,” he said.
Although some investors fear the acquisitions of Bill Me Later and the Danish websites will eat into eBay’s earnings, analysts say they play to the company’s strengths — unlike the $3.1-billion purchase of Internet Communications Company Skype, which has failed to generate the revenue or synergies eBay expected.